Please note this is only an opinion and not financial advice. Direct stock investing is subject to business and market risks. Therefore, it’s highly recommended to do proper risk management and your own due diligence before investing.
Value Stock Analysis as on 21 October 2023
Top Value Stock
NYSE: The Home Depot, Inc. (HD)
- * Bernie Marcus and Arthur Blank founded The Home Depot in 1978, Their new “hardware store” would become for both home improvement and the retail sector.
- * It sells various building materials, home improvement products, lawn and garden products, and décor products, as well as facilities maintenance, repair, and operations products.
- * The Home Depot Company operates over 2,300 stores offering a wide range of products and services in the US, Canada, and Mexico.
- * Home Depot is a wide-moat home improvement retailer that has consistently demonstrated its best-in-class profitability.
- * It has shown its resilience over the past year, even though it’s undergoing a normalization phase after an unsustainable pandemic-driven boost.
- * HD is a popular store where people can buy tools, materials, and appliances for home improvement projects. And home improvement projects have been very popular during the COVID-19 lockdowns.
Home Depot’s Revenue by Product Line:
| Product line | 2020 Q1 | 2021 Q1 | YOY Growth | Revenue Share in Q1 2021 |
| Building Materials | $9.82 | $13.66 | 39.10% | 36.43% |
| Decor | $9.31 | $11.88 | 27.60% | 31.68% |
| Hardlines | $9.14 | $11.96 | 30.85% | 31.89% |
| Total | $28.27 | $37.50 | 32.65% | 100.00% |
What we think are pros of business:
- The company underscored the robustness of consumer spending, underpinning a resilient US economy.
- The stock’s 13.8% to 16.8% annual total return prospects for the next 10 years are materially higher than the 10% projected returns for the S&P 500.
- Home Depot’s success can be attributed to exclusive relationships with high-quality suppliers, seamless digital integration, and a Pro-focused business model.
- Strong market position: Well-known brand, large customer base from different regions or countries.
- Home Depot mentioned that they are benefiting from two main factors: there aren’t many homes available for sale, and high mortgage rates are making homeowners who previously refinanced at lower rates less inclined to sell their homes.
What we think the risks are:
- As Home Depot settles into a lower growth situation then its capital structure can be adjusted to take on some more debt provided there isn’t a significant lowering of the company’s market capitalization.
- The company’s higher interest rates on debt lead to higher discount rates and lower valuations.
- The HD company saw a drop in same-store sales in Q2, marking its 3rd straight quarter of negative SSS sales.
- Home Depot company mentioned that certain big-ticket discretionary categories continued to face pressure.
Fundamentals:
- Market Cap: 286.43 Billion
- Revenue: 154.88 Billion
- P/E: 17.85
- EPS: 16.05
- Net Profit margin = 10.48%
- Dividend: 8.63 (2.92%)
Technical for a long-term perspective:
– Currently trading at its 200 EMA support as on weekly time frame charts.
– We can see a strong reversal from its current level because there is also trendline support.
– This stock always reverses from its EMA support and goes towards higher levels.
– It may first comes around 330 levels and then it will go up to 400 and then 600 levels within in next 2-3 years.
– RSI is at the comfort levels and it always reverses from the same current levels as per the previous records.
Entry = 286
Stop Loss = 264
Target = 330 / 425 / 600.
Our Final Thought:
Home Depot operates in a retail sector that’s influenced by economic ups and downs. Their smart acquisitions and focus on innovation show they’re determined to adapt to long-term trends. Right now, Home Depot’s stock is reasonably priced, but it might be wise for potential investors to wait for a 5% to 10% price drop as a chance to invest in this excellent dividend growth stock. I think Home Depot’s stock price doesn’t fully reflect its potential. In my view, Home Depot is a high-quality company, making it a good choice for long-term investors. Home Depot is an exceptional company for those interested in dividend growth because its $286 share price is less than what it’s truly worth, around $370. From the technical view, it is very bullish for the view of Midterm and long term both. The stock’s 13.8% to 16.8% annual total return prospects for the next 5 to 7 years are materially higher than the 10% projected returns for the S&P 500.
Please note this is only an opinion and not financial advice. Direct stock investing is subject to business and market risks. Therefore, it’s highly recommended to do proper risk management and your own due diligence before investing.
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